Source documents (accounting)
Source documents are the original records — invoices, receipts, credit notes, bank statements — that provide evidence a business transaction occurred. They are the starting point of the accounting process and the audit trail behind every entry.
Source documents are the original paperwork or digital records that prove a transaction took place. Every entry in a company's accounting system should trace back to one: a sales invoice, purchase order, receipt, credit note, debit note, bank statement, remittance advice, or payroll record. They capture the essential facts of the transaction — the date, the parties, the amounts, and what was bought or sold.
In the accounting cycle, source documents come first. When a business sells goods on credit, it issues a sales invoice; when a customer returns goods, the seller issues a credit note reducing the amount owed. These documents are recorded in the books of prime entry (such as the sales day book or cash book), then posted to the ledger accounts through double-entry bookkeeping. Without the source document, there is no verified basis for the entry.
Source documents matter because they create the audit trail. Auditors verify financial statements by tracing recorded transactions back to their supporting documents, and tax authorities expect businesses to retain them as evidence. They also support internal control: matching a supplier's invoice against the purchase order and goods received note before payment helps prevent errors and fraud.
The ACCA Financial Accounting (FA) exam tests source documents early in its syllabus on double-entry bookkeeping and accounting systems. Expect questions asking you to match a document to its transaction — for example, identifying that a credit note is issued for a sales return, or that a remittance advice accompanies a payment to a supplier.
Key takeaways
- Source documents are the original evidence that a business transaction occurred.
- Common examples include sales invoices, purchase orders, receipts, credit notes, debit notes, and bank statements.
- They feed the books of prime entry, which are then posted to the ledgers via double-entry bookkeeping.
- Source documents create the audit trail and support internal controls against error and fraud.